Libyans await economic recovery

Business picks up after socialism and sanctions nearly ruined private enterprise.

04 Sep 2009 14:08 GMT

Gaddafi, left, met with Obama, right, on the sidelines of a recent G8 meeting in Italy [GETTY]

Muammar Gaddafi, the Libyan leader, is in a celebratory mood as he marks his 40th year in power.

Not only has he fulfilled his promise to bring home Abdel Basset al-Megrahi, the former Libyan intelligence agent convicted of the 1988 Pan Am bombing over Lockerbie, but he is also strengthening trade ties with Europe and the US.

Since his 1969 coup which overthrew the monarchy, the former officer in the military has applied his brand of socialism to Libya's economy in the 1970s, survived a number of military clashes – including the bombing of Tripoli, the capital – with the US in the 1980s, and endured two decades of crippling sanctions.

With Libyan oil now pumping into Western markets, however, Gaddafi is promising to focus his attention on combating corruption and improving the way the state bureaucracy operates.

But ordinary Libyans say they are yet to reap the benefits of their country's newly-restored international status after a period of economic restrictions and unemployment.

They wonder whether new business deals will usher in a period of economic stability for the country.

With an estimated sale of $46bn in oil last year, Libya is Africa's second largest exporter, but years of government mismanagement and institutionalised corruption has meant very little of that oil wealth filters down to the population.

Even as billions stack up in foreign reserves, salaries in Libya remain very low when compared with other oil-producing countries.

"The average Libyan has not benefited from oil," says Tareq Al Houni, a journalist with Quryna, a local newspaper.

"We have yet to see how any American investment in business other than oil will help us, as only [the oil industry] employs a small sector of the economy."

Business after Lockerbie

Gaddafi has allowed private enterprise to re-emerge [EPA]

Libya's economy was dealt a severe blow when US oil companies were withdrawn following accusations that Libyan agents had orchestrated the bombing of Pan Am flight 103 over Lockerbie.

The bombing killed 270 people.

In 1992, the UN Security Council also imposed sanctions – including the sale of oil equipment - on Libya in an attempt to pressure Gaddafi into handing over the bombing suspects to an international tribunal.

In 1993, the sanctions were expanded to include the freezing of Libyan assets abroad.

Arab League economic data indicated that Libya had lost at least $4bn a year due to the punitive sanctions regimen.

The UN suspended sanctions when Libya turned over the suspects in 1999. In 2002, Gaddafi offered to pay $2.7bn to families of the Lockerbie victims, paving the way for a rapprochement with the US and Europe.

In 2005, US oil companies returned to Libya and one year later, Tripoli and Washington resumed full diplomatic ties. Foreign companies were then able to invest in massive Libyan construction projects, particularly in the oil sector, for the first time in decades.

Pre-revolution economy

Key dates in Libya's history

September 1969: Muammar Gaddafi, 27, abolishes the monarchy and declares Libya a republic following a bloodless coup.1975-1979: Three volumes of the Green Book, promoting Islamic socialism, are published.1977: Libya becomes a Jamahiriyah - republic of the masses. 1980: Nine Libyan dissidents are assassinated abroad. 1986: US blames Gaddafi for Berlin terrorist attack and bombs Libya.1988: Libya accused of Lockerbie bombing. US slaps sanctions on Tripoli. UN follows suit in 1992. 1999: UN removes sanctions; US restores trade ties four years later. 2002: Abdel Basset al-Megrahi found guilty; sentenced to life for Lockerbie bombing.2003: Libya announces it will disassemble its nuclear programme2006: US restores full diplomatic ties with Libya.August 2009: Al-Megrahi returns to Libya on "compassionate grounds".

When Gaddafi came to power in 1969, Libya had been exporting nearly seven per cent of the world's oil output in production-sharing deals with foreign companies, which owned and operated 49 per cent of the country's energy sector.

Gaddafi moved quickly to implement socialist reforms and nationalise the oil industry.

In 1975 he published the Green Book, which called for removing political parties and parliamentary democracy.

He believed state intervention was the most efficient way to ensure economic autonomy and social equity.

His government depended on oil revenues, which to this day account for some 95 per cent of the country's exports, to launch ambitious projects in industry, agriculture, education and social programmes.

Rapid modernisation fuelled a construction boom luring in African and Egyptian migrant workers to Tripoli, Benghazi and other cities.

Gaddafi distrusted the merchant class, which he blamed for economic inequity, and feared a coup by a wealthy, educated class – encouraged by dissidents abroad.

In 1977, he began to shut down all private enterprises and replaced them with workers' committees.

During this period, which Gaddafi dubbed "the era of tightening the belt", household appliances and electronics, fruit, chocolate and gum were labelled as accessories and banned from import. This ban quickly grew to include anything from abroad that led to "bourgeois exploitation".

The government replaced its import economy with state corporations that sold rationed staples such as wheat, flour, oil and sugar. As the GDP declined, the government seized control of the business sector, effectively bankrupted the real estate sector and imposed a travel ban.

Tripoli, a once flourishing metropolis, became a ghost town.

In order to cope with stifling market conditions, Libyans began smuggling goods from neighbouring countries in what came to be called "Tajir Shanta" or suitcase mercantilism.

"People would buy underwear, cameras, brooms, whatever they could," says Khalifah al-Muqataff, the editor-in-chief of Mal wa Amal (Finance and Business) - the only independently-owned business newspaper in Libya.

But 20 years later, with sanctions removed and foreign companies clamouring for deals with Tripoli, the Libyan economy is experiencing a revival.

In 2000, the government began lifting the ban on "accessories", issued licenses to merchants to import goods, and allowed Libyans to travel abroad.

Within a few years, Libyans engaged in private enterprise such as electronics and computer shops, internet cafés and clothes stores.

"People began to leave their nest, and start up businesses [in clothing, technology, electrical equipment, supermarkets, etc] and they were free to do so," says al-Muqataff, who has family members that own clothing and designer shoe shops in Gargarish, a popular shopping district in Tripoli.

Private business prospered as Western companies began trickling in and working in the oil and gas industry. After a 15-year hiatus, US oil companies returned to Libyan oil fields and secured contracts to upgrade the existing energy infrastructure.

Multinational companies such as Exxon Mobil, Chevron, Daewoo Engineering and Construction and British Petroleum have poured into Libya in an effort to win bids to build industrial zones, hotels, resorts, office towers and educational facilities.

By 2006, economic growth reached 8.1 per cent - up from 1.2 per cent in 2003. In 2007, the International Monetary Fund said it was impressed with Libya's macroeconomic performance but warned of "uncontrolled inflation".

Jumaa al-Ustaa, chairman of the General Confederation of Chambers of Commerce and Industry, says since the removal of sanctions, Libyans have started to enjoy better wages and more work opportunities.

"Seventy-five percent of Libya's labour force is employed, things are speeding up, but we are behind in implementing rules to cope with the business boom."

In 2008, the Libyan Centre for International Arbitration was established to convince foreign direct investors that Libya was making strides to create a safe and fair business environment.

Afaf Khamerza, owner of Delta Libya, an oil services company which heads the new arbitration centre, says: "We are working hard to erect solid principles that agree with international standards, this includes local courts for international arbitration."

Many Libyans remain skeptical that the construction sites and piles of cement cluttering the streets will lead to new job prospects and increased prosperity.

Luay, a 26-year-old university graduate, says he is not participating in the events marking Gaddafi's 40th year in power.

"Every September 1, they come clean the streets and build new roads for Gaddafi's convoy to pass through," he says.

"It is for Gaddafi to see that things are looking good, when they are not."